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How to Get Pre-Approved for a Car Loan
Applying for a car loan pre-approval is actually very simple, as long as you take a few minutes to get everything organized. Here are the steps you’ll need to take.
Gather Information and Documents
Most lenders require the same information. Instead of assembling this piecemeal as you go, spend some time gathering these specifics. Jot down important details and compile all supporting documentation into a single, ready-to-use file that you can email to the lender.
You’ll generally need the following details:
- Name
- Address
- Employer
- Occupation
- Date of birth
- Email address
- Phone number
- Social Security number
- Recent addresses and length of residency
- Total income, whether monthly or yearly, plus any supplementary sources of income
The most recent versions of the following records are also required:
- Pay stubs
- Tax returns
- Bank statements
- Driver’s license or other official photo ID
Collect Pre-Approval Offers
Just as you wouldn’t choose the first car you see when you go car shopping, the same is true when it comes to auto loans. For this reason, you should compare loans from different lenders, and in order to do so, you must apply for pre-approval from each of them. The more lenders you are pre-approved with, the higher the likelihood that you will receive the greatest loan.
Because pre-approvals can result in hard credit inquiries that lower your credit score, make sure you complete all of your rate shopping quickly. Depending on the model being used, all hard inquiries for auto loans within a 14- or 45-day period will only be counted as one inquiry. In order to maintain your credit score as much as possible, check your offers as soon as possible.
It is advised that you allot some time for this. Applying for pre-approval with each lender only takes a few minutes, and you can typically do it online. Make note of the following information from each lender’s offer letter to ensure consistency across all of your offers:
- Loan rates
- Loan expiration date
- Maximum pre-approval amount
- Any restrictions, like those pertaining to age or mileage, or the need to purchase from specific dealerships
Go Car Shopping
Once you have several offers to select from, select the offer with the most favorable terms. If you print this off and bring it to the dealership when you go car shopping, you can literally use it as a negotiating chip. When you locate your dream vehicle, present the offer letter to the salesperson and inquire about any better terms on auto financing or even the car’s purchase price.
Make sure you locate the vehicle of your choice before the 30- to 60-day period that your pre-approval offer expires. If not, you’ll need to reapply for pre-approval and the rates might have changed.
Best Car Loan Rates
| Lender | New APR* | Used APR* | Refinance APR* |
|---|---|---|---|
| AUTOPAY | 2.99% and up | 2.99% and up | 2.99% and up |
| Consumers Credit Union | 5.24% and up | 5.24% and up | 5.49%–8.54% |
| LendingTree | 4.75% and up | 4.75% and up | 1.80% and up |
| LendingClub | N/A | N/A | 3.99%–24.99% |
| PenFed | 5.39%–17.99% | 6.04%–17.99% | 5.39%–17.99% |
| Carvana | N/A | Not disclosed | N/A |
| OpenRoad Lending | N/A | N/A | 1.99%–29.90% |
Check out how we selected the best auto loans here, along with our choices for other categories:
Benefits of Car Loan Pre-Approval
It’s true that there are a few more steps involved in getting pre-approved for a car loan. However, you’ll receive a few significant advantages in exchange that will ease and lessen the stress of your car-buying process.
- Obtain the best loan: Rather than being at the mercy of the dealership, you will be able to decide which loan is best for you. That can save you a lot of money.
- It’s easier to avoid upsells: If you base your purchases on your monthly payment amount, salespeople have a variety of strategies up their sleeves to increase your expenses. However, if you ignore that and just consider the car’s price, you’ll be in a better position to decline those upsells.
- Accelerate the car purchase: When the time comes to buy a car, you spend a lot of time in the financing office of the dealership. However, you can reduce that time in half if you already have a loan in place.
- Greater financial comfort: By getting pre-approved first, you can determine whether you’ll be accepted or denied, how much it will cost, and whether it will fit into your long-term spending plan.
To determine exactly how much car you can safely afford, you can compare your budget to your car loan pre-approval offer. This amount is typically much less than the maximum loan offer.
Auto Loans: Pre-Qualification vs. Pre-Approval
Although the terms “pre-approval” and “pre-qualification” are similar for some credit types, they seem redundant. But for auto loans, they have very different meanings.
A lender will have completed a soft credit check and a basic assessment of your financial situation if you are “pre-qualified.” It’s not as comprehensive as a “pre-approval,” when a lender conducts a more extensive scope of work. A hard credit check is usually required for a pre-approval, and the lender will request additional information and supporting documentation.
Being pre-approved for a loan has greater certainty than being pre-qualified for one. But it’s still not final until you find the car.
How to Increase Your Odds of Approval
A preapproval can help you position yourself to receive the best auto loan. However, there are a few steps you can take to get ready for the actual pre-approval:
- Examine your credit: Verify your credit reports and score. This gives you an idea of what kinds of lenders you might be eligible with, lets you know what you need to work on, and gives you time to correct any mistakes.
- Put money down for a down payment; the more you can do so at first, the less of a loan you’ll require. That saves money, but if you don’t need to borrow as much, it might also improve your chances of being approved.
- Reduce credit card debt: Your debt-to-income ratio is a factor that lenders use to determine how much you can borrow. Reducing your credit card debt can help you save money, improve your credit, and possibly even get approved for a bigger loan.
- Pay off any past-due amounts. If you have outstanding debt, it will be difficult to get a loan.
What to Do After Pre-Approval
You’re prepared to go car shopping once you’ve been pre-approved for an auto loan. When you find the right car, don’t forget to bring your best pre-approval offer so you can try to negotiate better financing.
If you are pre-approved for an auto loan, the lender may occasionally send you a blank check. The plan is to carry this with you when you go car shopping so that, upon spotting the vehicle of your dreams, you can immediately write a check for the amount up to your pre-approval offer.
Find out more about purchasing a car, and to save time on your search, take a look at our list of the top used car websites.
Where Can You Get Pre-Approved for Auto Loans?
Many different types of lenders offer auto loan pre-approval. First, make sure to check with your bank and any nearby credit unions. After that, see if you can get a better deal from any other banks or credit unions, as well as online auto lenders.
What Credit Score Do You Need to Get Pre-Approved for Car Loans?
The minimum credit score required to be pre-approved for a car loan is not fixed. Every lender has an internal threshold, and they don’t always disclose this amount. In general, having good or excellent credit will give you the best chance of getting approved by any lender.
Is It Hard to Get Pre-Approved for a Car Loan?
Pre-approval for a car loan can be challenging, depending on your credit history and the lender you’re applying to. Obtaining pre-approval for an auto loan will be more difficult if you don’t have reliable income and good credit. The work involved in getting pre-approved for a car loan isn’t too much. Although you’ll need to gather some financial records and data, the pre-approval procedure is fairly standard across lenders and only requires a short while.
Does Pre-Approval Guarantee a Car Loan?
No, obtaining preapproval for a vehicle loan does not ensure loan approval. You won’t be able to obtain a loan from your lender if the vehicle you choose doesn’t meet their requirements. Additionally, while your lender is conducting any last-minute checks prior to final loan approval, they may discover information about your finances that disqualifies you from receiving a loan, in which case you could be denied. Article Sources: Investopedia mandates that authors cite original sources to bolster their claims. These consist of government data, original reporting, white papers, and conversations with professionals in the field. When appropriate, we also cite original research from other respectable publishers. You can read more about the guidelines we adhere to when creating impartial, truthful content in our
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FAQ
Does pre-approval guarantee a car loan?
Preapproval does not ensure financing approval; it is still only an estimate. You will still need to successfully complete a formal application process even if you receive prequalification or preapproval.
Can you be denied a car loan after pre-approval?
Even if you were preapproved in advance, banks, credit unions, and online lenders might not approve your auto loan if they are unable to validate the details you submitted on your application. The majority of lenders will grant conditional approval after a brief review of your financial information.
Does it hurt my credit to get pre-approved for a car?
Therefore, you shouldn’t anticipate that it will have a significant impact on your credit score—it won’t ruin it, either. Although a “hard credit inquiry” is required in order to be pre-approved for an auto loan, this has little effect on your credit score.
Should you tell dealership you are preapproved?
Pre-approval Boosts Bargaining Power: By demonstrating to an automobile dealer that you are pre-approved for a loan, you are demonstrating to them that you are a serious buyer. With pre-approval, the dealer might be more accommodating in helping you locate the ideal car rather than assuming you are merely window shopping.
Read More :
https://www.investopedia.com/how-to-get-pre-approved-for-a-car-loan-7485858
https://www.bankrate.com/loans/auto-loans/how-to-get-preapproved-auto-loan/